Will Hollywood Go The Way Of Enron?
Derivatives Come To The Movies

It’s such a great system, they want to replicate it.

Critics are worried that the new exchange will turn Hollywood into another derivatives casino, vulnerable to insider trading. Even if traders aren’t hiding behind bushes waiting to trip up the stars, the exchange could create bizarre incentives for moviemakers to manipulate and distort the market for their own products.

As if attacks from paparazzi and star-crazed fans weren’t enough, Hollywood stars may soon have a literal price put on their heads by investors in the Cantor Exchange, a real-money trading platform where people can bet on the gross profits of upcoming movies. Sales of The Dark Knightskyrocketed after Heath Ledger died unexpectedly, and so did sales after the deaths of Michael Jackson, Elvis Presley and Marilyn Monroe. Will greed-driven investors now be laying in wait for the stars of movies they have bet on?

The Cantor Exchange (CE) is based on a virtual trading platform called the Hollywood Stock Exchange (HSX), a web-based, multiplayer simulation in which players buy and sell “shares” of actors, directors, upcoming films, and film-related options. The difference is that where the HSX uses virtual money, CE will turn the game into a real casino using real dollars.

On April 21, Cantor Exchange reported that it had just received
regulatory approval from the Commodity Futures Trading Commission (CFTC), which oversees futures exchanges. “This is a significant step forward in achieving
our ultimate goal,” it said in a letter, “which is to launch a market in Domestic Box Office Receipt Contracts.”

Having “contracts” out on movies and movie stars, however, has an ominous ring; and the Motion Picture Association of America (MPAA) apparently doesn’t like the sound of it. The Cantor letter said that its tentative launch date of April 22 was being delayed because the MPAA and others “raised concerns about the economic purpose of this market and its usefulness as a hedging vehicle.”

The legitimate hedgers, the moviemakers and equity holders with a real financial interest to protect, don’t want it. But Cantor is pushing forward, because gambling is big business and there are vast sums of money to be made.

Critics are worried that the new exchange will turn Hollywood into another derivatives casino, vulnerable to insider trading. Even if traders aren’t hiding behind bushes waiting to trip up the stars, the exchange could create bizarre incentives for moviemakers to manipulate and distort the market for their own products, perhaps intentionally sabotaging movies they know are losers.

The Derivative Craze

A“derivative” market is one that is “derived” from an
underlying asset, but participants don’t have to own the asset to play. Like
gamblers at a race track, they can bet without owning a horse. Derivatives have
now become a $605
trillion industry, about ten times the gross domestic product of all the
countries of the world combined. This money is not contributing capital to
businesses, helping the economy to grow. Rather, it is being diverted into
wagers. Money is made by taking it from someone else.

Worse, half the wagers are negative: the players want
the thing to fail. Warren Buffet called derivatives “financial weapons of mass
destruction.” By massively short selling a
stock or a currency, speculators can actually force the price down. Derivatives
can be used to sabotage not only businesses but whole economies. Derivatives
have been blamed for such economic disasters as the collapse of Japan’s stock
market in 1987, the Asian crisis of 1998, and the recent collapse of Greece.

Gaming the Hollywood Game

Max Keiser, who founded CE’s virtual forerunner HSX in the 1990s, has firsthand knowledge of how the Hollywood exchange can be abused. When he was CEO of HSX, he says, he came under pressure from fellow board members to give in to studio heads who were offering cash and other inducements to manipulate the prices of projects, either up (to legitimize more marketing dollars) or down (to sabotage competing projects). “These guys, including my own board of directors,” he says, “could not tell the difference between marketing and market manipulation.”

Whether a movie’s stock price rises or falls is considered
to be a predictor of the movie’s future success; but Keiser warns that today, the
prediction value of market pricing is largely a hoax. Traders using
sophisticated computer programs have learned how to manipulate prices, and market rigging has become institutionalized.

“The only difference between the new box office futures
contracts being manipulated and blowing up,” he says, “and stocks in companies
like Lehman Brothers being manipulated and blowing up, is that people losing
their money can imagine getting screwed by Scarlett Johansson instead of Dick
Fuld.”

Keiser predicts that his altered HSX computer technology, if approved by the CFTC for use in a real-money exchange, will produce an insider trader’s paradise, with Hollywood going the way of Enron and Lehman Brothers in two years or less.

“But this is what rigged market capitalism is all about,”
he says. “It’s not economics really. It’s arson. They bet against a company or
a country and then burn it down.”

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include Forbidden Medicine, Nature's Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com and www.ellenbrown.com, and www.public-banking.com.

Ms. Brown's stories are republished in the Baltimore Chronicle with permission of the author.

Republication or redistribution of Baltimore Chronicle content is expressly prohibited without their prior written consent.

Baltimore News Network, Inc., sponsor of this web site, is a nonprofit organization and does not make political endorsements. The opinions expressed in stories posted on this web site are the authors' own.